Thursday, March 13, 2008

Approaching Debt Freedom (sort of)

I love to listen to calls on Dave Ramsey's show on Friday because that is the day when people call to scream "WE'RE DEBT FREE!" I completely empathize with the sentiment of wanting to make that statement. My only problem with making it, though, is that people make it before they truly are. They don't consider having a mortgage as not being debt free. I definitely consider my mortgage when thinking about debt, because it weighs on me more than any other debt I have ever had. Looking at a payment breakdown and seeing well over half the principal and interest going to interest, and then another chunk going to escrow, it feels like the payments will never end. I hate the idea of being a slave to anyone or anything, and debt makes me feel like a slave. So I want to call and screams "WE ONLY OWE ON THE HOUSE!" in a few weeks, but that doesn't sound nearly as powerful. So, my phone call on debt freedom will just have to wait.

How long will it wait? I now have three timelines outlined for our mortgage payoff. We can live reasonably well, pay a lot extra, and be done with it in just about four years. Eight years to pay off a thirty-year mortgage feels pretty good, and not suffering too badly to do it sounds great. But somehow I didn't feel like we were really getting in the mindset of a Total Money Makeover if we had a lot of nonessential spending still built into our budget, so I examined it again. This time, I came up with a timeline of around three years, which requires us to avoid spending money on a home improvement project we had in mind until we're done, and generally cuts out any excess above necessities, a small entertainment budget, and two vacations. Still, I wanted to see if I could come up with a way to break the three-year barrier. So I reduced the spending to essentials, one inexpensive vacation a year (think, visiting relatives), and all our entertainment budget stripped down to only include one major fun thing a month that we have committed to doing, but not much of anything else.

Two years and three months came back. I checked my inputs, thinking that couldn't really be true. Still, the chart showed two years and three months. Could we live like no one else for two years with the goal being to live like no one else forever after (across the bottom of every page in Dave Ramsey's book it says "live like no one else, so you can live like no one else"). Somehow, I think I could. I have been a college student living on a tight budget twice. My wife has lived on a tight budget much more than I have. Our kids probably wouldn't notice much if we cut a lot of the excess out of our lifestyle for a couple of years, and it would be good for them to see us do it. Children who see their parents pinch pennies learn to do it themselves in many cases. If we teach them why, they certainly have a chance to understand the value of sacrifice, which is a good lesson for anyone to learn.

Can we do it? Can we really pay off our house that fast? My mind says "Just Do It!" like a Nike Ad. My heart worries for my wife and children and the things they'll give up (my own sacrifices are much easier to me than anything I can ask of them). Still, two years compared to fifteen or twenty feels like a wonderfully short time. Can we do it? Here's hoping.

-- Robert


le35 said...

My Daddy always says, "Expenses always rise to meet income." I think that that's right, but I can really see how we can shrink our expenses. There are some things like TV that we pay for that we don't actually HAVE to have. I'm thinking that for these two years, we may get rid of that. What do you think?

Melissa said...

I have a slightly different take on my mortgage and another commitment we have.

The other commitment is a payment into a prepaid college tuition plan.

I don't see either of these as "debt" per se. More of an "obligatory monthly investment", like paying into an annuity. The mortgage is going away in seven years, since we refinanced into a 15 yr note 8 yrs ago. And of course, the tuition plan is paid off when each of the boys reaches their sr. year of high school.

Now my medical bills and cars, that's another issue. That is debt, plain and simple. We're doing what we can to pay off those medical bills as soon as possible, but no matter what (we had to get a consolidation loan to deal with them), it will be paid off in three years.

That said, I'll be watching you to see if I can get some ideas to cut back and accelerate the process. :)

Robert said...


I have one wonderful idea for you: read Dave Ramsey. Read his site, listen to his shows, and read his book. Get what he would call "Gazelle intense" and you will find a way to live a better life.

1) He would tell you the prepaid tuition is a poor invest. You're only averting inflation of 7% annual (average rise of tuition) versus investing at 12% (the average return of the market over its life), plus you're locked in more to where they can go (if I understand these plans correctly).

2) The house payment can get paid faster, and it is not a necessity of life.

3) Pay off all other debts before worrying about the house payment speeding up.

I've reversed the baby steps in how I've said these things. Read his site, though, to get the Baby Steps of The Total Money Makeover. I think we just outlined a plan that could get us out of all debt in two and a half years. I can hardly imagine it.

Melissa said...

Our plan, which is unavailable now, locked in the tuition and fee rate at the 1999 level for four years. It is good at any public university in the state, and if they choose private or out of state, then there is some prorating thing that kicks in. Considering that UT has gone up about 200% since that date, it has actually been one of my better investments. Yeah, maybe I could get a better return, but the lock in rate was too good to pass up. And it was guaranteed, which other investments aren't.

And I do plan on getting his book. You've convinced me. But don't think there's hope of turning me into a republican or anything. Even though I have to send my kids to Laura Bush elementary next year. Ugh...

Robert said...


Dave Ramsey is not a Republican pundit. His entire message is about financial advice, and he uses scripture a lot but not in an overtone that would offend any particular faith (unless they just want to be offended). He is a Christian first, a financial adviser second, and third just a giving person who wants people to get out of debt for the sake of finding greater financial peace (his earlier book was called Financial Peace). He does not believe or profess that money is the solution to all problems, nor does he think the love of money is a healthy thing. He just knows that wealth has a way of giving people a greater chance to enjoy their own lives if they are the sort of people who would enjoy it regardless. I'm going to write a post about the three uses of money that he explains, and which I completely agree with.

If you want to become Republican, though, I won't stop you. :)

Melissa said...

I *know* he's not a republican. Need to work on your satire/irony/sarcasm muscle. :)

Oh, and VBC will be coming back soon.

Robert said...

*pumping iron* I'm quite good at satire/irony/humor generally, but in type, you can't always tell. First time I chatted online, someone took everything I said completely seriously and they started getting offended. I had to spend twenty minutes explaining myself before they realized I was joking.

And why, you ask, were they so offended? I didn't use smileys. I'd never chatted before! How should I know? Anyway, thanks to all my days of chatting, I hate reading all caps writing because I feel like someone is yelling at me. That's another story for another day, though.